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Questor share tip: ITV now a hold

Shares in ITV have risen faster than expected and now price in much of the bid premium so Questor downgrades to a hold

Total external revenue edged up 2pc to £585m in the three months ended March, driven by a steady increase in advertising revenue
Total external revenue edged up 2pc to £585m in the three months ended March, driven by a steady increase in advertising revenue Credit: Photo: ITV

ITV
207.8p-3.3p
Questor says HOLD

ITV [LON:ITV] shares have been on a good run boosted by a recovery in the UK economy and bid rumours swirling around the country’s largest commercial broadcaster.

The FTSE 100-listed media group said at the end of July that first-half revenue was increasing in both the broadcasting division and the studios, responsible for making programmes such as Downton Abbey. The company said that it was on target to achieve cost savings of about £15m for the full year, £5m ahead of target and, when combined with the rising revenue, this helped first half pre-tax profits to rise 16pc to £312m.

The shares were also lifted when BSkyB sold its 6.4pc stake to Liberty Global. Markets interpreted the share sale as a sign that ITV might eventually be bought outright by Liberty Global.

Questor thinks that while the bid rumours provide useful support to the shares any deal could be a long time in coming. Applying current industry takeover multiples to this year’s earnings forecasts implies a share price of between 215p and 245p, according to Investec.

Market consensus is for pre-tax profits to jump by 53pc in the current year to £666m, on revenue up by about 8pc to £2.6bn.

ITV is well placed to drive profits from increased advertising revenue as it has been cutting costs.

The company also made sensible use of spare cash last year, restructuring the debt, and making pension contributions.

The shares have risen 15pc since Questor said “shares in ITV are looking cheap” last year (Buy, 181.25p, September 12). But with much of the bid premium now in the price we downgrade to a hold.